Value-added logistics a 'golden opportunity' for Africa

The emergence of global value chains presents a “golden opportunity” to countries with a limited existing manufacturing or service export base and a large pool of labour, such as many in sub-Saharan Africa, according to the 2015 Regional Economic Outlook for sub-Saharan Africa by the International Monetary Fund (IMF). In an increasingly integrated world economy fuelled by technological progress, cheaper transportation and communication costs, and policy reforms in support of trade, production processes have become more dispersed across the globe, says the report. This has given rise to systems of supply chains in which value is added at each stage before crossing the border to be passed on to the next stage – global value chains. The trend has “allowed countries to better exploit their comparative advantages by giving them the opportunity to join a production chain without having to provide all the other upstream capabilities, and has been particularly at play in Southeast Asia around Japan and China and in Eastern Europe around Germany,” says the report. Among the first sub- Saharan countries to plug into global value chains are Ethiopia, Kenya, Seychelles, South Africa and Tanzania, all of which have increased their share of value adding to their exports by 5% or more over the past two decades. The sectors that have benefited the most from the deepening of integration include agriculture and agro-business (especially in Ethiopia and Seychelles), manufacturing (particularly in Tanzania), as well as textiles, transport, and tourism. “These examples bode well for the region: for one, the increase in depth of integration in some of these countries, at 10 percentage points or more, is of a similar magnitude to that experienced by countries such as Poland or Vietnam that are now success stories within large global value chains. “They also highlight the sectors — agro-business, light manufacturing, tourism and textiles — in which sub-Saharan Africa has potential to leverage its comparative advantages, which include a young and growing labour force, large share of unused land, and favourable climate. “The upshot is that the region still has an enormous potential to integrate into global value chains. “By leveraging this potential, deeper ties into global value chains may help foster structural transformation, export diversification, and the possibility to absorb technology and skills from abroad. “These benefits are especially important for countries with relatively small domestic markets,” says the report. Steps needed to unlock this value-added logistics potential include a reduction in tariff rates across sub-Saharan Africa, which could increase the share of foreign value added in exports by about 3%. Improvement in access to credit could increase the share by a further 2% and an increase in education spending and implementation of the rule of law to levels seen elsewhere in the world by another 1% each.